Precious metals continue to lose shine

Firming up of dollar and eroding crude continue to weigh on precious metals

A rising dollar continued to play bad for the precious metals even today, Thursday, 29 November, 2007. Gold and silver prices slipped at Comex just like the past couple of days. Gold prices settled below $800/ounce today. Strong dollar and eroding crude price once again knocked off some of the glitter from the precious metals. Gold generally moves in the opposite direction of the U.S. currency.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Comex Gold for December fell $5 (0.6%) to close at $795.3 an ounce on the New York Mercantile Exchange today. Yesterday, prices had slipped by more than $13. Last week, Friday, 23 November gold had closed higher by 4.8%. On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.

Comex Silver futures for December delivery fell 9.8 cents (0.6%) to $14.237 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 11% this year. For the month of October, prices had gained 3.7%.

In the currency market today, the dollar gained against euro and other major currencies. The dollar index, which measures the performance of the greenback against a basket of six major currencies, rose 0.6% to 75.505.

In the energy market, oil prices initially rose by more than $4/barrel and touched $95/barrel. But then prices gave up all of its earlier gains and slipped lower closing around $90/barrel.

Gold had climbed 18% in the past two months (Sept-Oct) and 26% for the year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 11% down against the euro this year. In October itself, gold prices gained 6%. The metal's October rally was the fourth straight monthly gain.

In 2006, silver had jumped 46% while gold gained 23%.

Dollar had been witnessing a free fall since Federal Reserve cut interest rates in September. On 31 October, 2007, Federal Reserve again cut the fed funds rate by a quarter-point to 4.50% and said that the recent spike in commodity prices may put renewed upward pressure on inflation. Prior to that, Federal Reserve had cut interest rates by half percentage point on 19 September, 2007.

At the MCX, gold prices for December delivery closed at Rs 10,235 per 10 grams. The closing price is Rs 14 (0.14%) lower as against previous closing price. Prices rose to a high of Rs 10,358 per 10 grams and fell to a low of Rs 10,205 per 10 grams during the day’s trading.

At the MCX, silver prices for December delivery closed Rs 93 (0.5%) lower at Rs 18,784/Kg. Prices opened at Rs 18,950/kg and fell to a low of Rs 18,669/Kg during the day’s trading